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Speaker 1: This is the Bloomberg Surveillance Podcast.

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Speaker 2: I'm Tom Keane, along with Jonathan Farrow and Lisa Abramowitz.

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Speaker 2: Join us each day for insight from the best and economics, geopolitics,

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Speaker 2: finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple,

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Speaker 2: Spotify and anywhere you get your podcasts, and always on

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Speaker 2: Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business app.

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Speaker 2: Cameron Dawson tear eyed over the quality of that data.

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Speaker 2: Check Cio of New Edge Wealth joining us right now.

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Speaker 2: What's your conviction the next year? I'm talking about you

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Speaker 2: need to get conviction.

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Speaker 1: Now, do you have a lot of conviction?

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Speaker 3: I think that we have to judge as we go

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Speaker 3: into the end of the year when we look at

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Speaker 3: where we in the year with positioning and sentiment and

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Speaker 3: valuations and earnings expectations, because if we get to a

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Speaker 3: point where those things are stretched, where people have been

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Speaker 3: drawn into the market, everybody chases the market into a

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Speaker 3: rallying to the year end, that's when you probably want

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Speaker 3: to start asking questions of how sustainable or durable is

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Speaker 3: We learned that lesson really powerfully this year in the

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Speaker 3: opposite direction. People were underweight, valuations had come in, positioning

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Speaker 3: was very light, and that set up for a very

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Speaker 3: powerful year this year.

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Speaker 4: One really difficult thing for a lot of people is

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Speaker 4: to get two things right. Won the call on the

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Speaker 4: economy and to what the economy means for financial markets.

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Speaker 4: I was looking at Deutsche Bank's call yesterday least when

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Speaker 4: I were going back and forth on this, They've got

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Speaker 4: recession one hundred and seventy five basis points of cuts.

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Speaker 4: Then bink chat is saying fifty one hundred on the SMP.

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Speaker 4: Is good news bad news? Or is bad news good news?

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Speaker 5: What is it?

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Speaker 3: I mean, it's sort of that I want it all

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Speaker 3: and I want it now kind of mentality, which is

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Speaker 3: that I want a FED that's supportive, and I want

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Speaker 3: an economy and earnings that are going to be growing

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Speaker 3: very strongly. And I have to think that we need

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Speaker 3: to ask the question of if a strong economy and

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Speaker 3: strong earnings are consistent with having FED rate cuts and

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Speaker 3: a recession, and if we can have both at the

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Speaker 3: same time, meaning that if the FED is cutting rates,

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Speaker 3: can we really grow earnings at twelve percent next year?

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Speaker 3: Do we actually have the potential that we could have

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Speaker 3: a third year in a row of earnings being closer

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Speaker 3: to flat. If we have a recession.

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Speaker 6: Well, this is John Sulfis basically saying people think we're

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Speaker 6: late cycle, we're actually mid cycle. That if the Federal

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Speaker 6: cuts rates is just sort of a mechanical year over

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Speaker 6: year trying to adapt restrictiveness to inflation, and that that

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Speaker 6: will pave the way for companies to continue to evolve,

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Speaker 6: particularly in the consumer cyclicals.

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Speaker 7: Thoughts.

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Speaker 3: Yeah, it's interesting. You go back to the times when

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Speaker 3: the Fed cut rates and we didn't have a recession

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Speaker 3: ninety five, ninety eight, and twenty nineteen. What's interesting is

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Speaker 3: that the Fed was actually very fearful of a recession

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Speaker 3: in each of those times. They talked about the US

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Speaker 3: not being an island. What's interesting is that the market

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Speaker 3: wasn't scared of a recession. There was no impact to earnings.

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Speaker 3: You had the market hitting all time highs as they

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Speaker 3: were cutting rates. So I think we have to take

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Speaker 3: the cue from the market if it starts to sniff

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Speaker 3: out that data is weakening, that data is starting to

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Speaker 3: come in where we need to be cutting earnings stents

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Speaker 3: we don't hit all time highs in markets, that's when

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Speaker 3: you'd say maybe recession risk is actually higher.

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Speaker 6: So what's your conviction is it to basically shift away

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Speaker 6: from the conviction of everybody else that equities are going

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Speaker 6: to go higher and to take the other side.

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Speaker 3: I think it's incredibly important to remain invested even in

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Speaker 3: times of uncertainty, and the way that we do that

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Speaker 3: is focusing on quality, focusing on companies that can block

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Speaker 3: and tackle, which just means that I want to take

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Speaker 3: out the risk that the economy is going to roll

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Speaker 3: over and I'm going to have big earnings downside. But

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Speaker 3: I also don't want to be over levered. I don't

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Speaker 3: want to be overextended on risk having to have the

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Speaker 3: best case scenario in order for my investments to work.

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Speaker 3: So it's still that middle ground. It's worked really well

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Speaker 3: this year, it likely works really well next year as well,

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Speaker 3: as we think we are still in that late cycle environment.

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Speaker 2: What's so interesting to me is the idea of developing

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Speaker 2: a conviction with five percent money market fund trillions out there.

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Speaker 2: Is part of your optimism of that money shifts given

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Speaker 2: disinflation yields?

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Speaker 3: Yeah, you know, it's a really good question. If all

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Speaker 3: the money market funds is truly investible cap.

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Speaker 1: Not all, but even at the margin that supports the bid.

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Speaker 3: And we do know that investors compared to the twenty

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Speaker 3: twenty two peak are about three percent less allocated to

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Speaker 3: equities than they were at the peak and twenty twenty

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Speaker 3: two looking at the AAII data, so that would suggest

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Speaker 3: that there is still money on the sidelines, that there

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Speaker 3: still is positioning to be drawn back in. And the

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Speaker 3: good news is that there's cash, there's liquidity. In order

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Speaker 3: to do that, we'll have to continue to watch that

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Speaker 3: data because once people get fully invested.

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Speaker 1: This is critical. I don't mean to interrupt, but you've

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Speaker 1: nailed it. Three percent as the delta here from.

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Speaker 2: AAI or whatever it is, AARP, whatever. But the answer

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Speaker 2: is if that money shifts and makes up the three

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Speaker 2: percent difference, what does that do in SMP or Dell points.

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Speaker 3: Well, it likely means that we can continue the rally,

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Speaker 3: But then it calls into question the durability of the rally.

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Speaker 3: Do we test the twenty twenty two high, do we

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Speaker 3: break through it with gusto and really have the kind

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Speaker 3: of rally that we saw coming out of time like

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Speaker 3: twenty eighteen, twenty nineteen, or instead, do we have this

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Speaker 3: sideways chop that looks a lot more like what we

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Speaker 3: experienced in the seventies or even in the two thousands.

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Speaker 4: And it's Chris Harvey is talking about did you just

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Speaker 4: request a down forecast?

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Speaker 1: I did, just busting this.

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Speaker 5: You have a down forecast?

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Speaker 3: Absolutely not.

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Speaker 5: I'm sorry. That was beautiful. Do you want to explain

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Speaker 5: why you don't have a down forecast.

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Speaker 3: Because it's a price weighted index?

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Speaker 5: Thank you, Cameron Tak Is that enough?

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Speaker 2: Jar Denney SPX five thousands, forty one thousand.

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Speaker 5: On the show clip that?

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Speaker 6: I mean, honestly, you guys just gonnatrol each other all

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Speaker 6: morning beautiful.

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Speaker 5: And I said, the perfect ending to this exchange was

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Speaker 5: very good. You know it was great.

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Speaker 1: It was very good. Camera.

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Speaker 5: Thank you. It's going to see it. Cameron Dawson, I

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Speaker 5: knew ittch Wealth, welcome back anytime.

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Speaker 2: I'm going to play this off my book of the

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Speaker 2: year years ago, Ken rog I was very courageous, The

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Speaker 2: Curse of Cash. He's writing about where we are with

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Speaker 2: digital currencies, what the Bank of International Settlements in Geneva thinks,

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Speaker 2: what Central Bank says.

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Speaker 1: He was at the New York Fed. Thanks.

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Speaker 2: Bill Dudley joins us right now writing an important column

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Speaker 2: on c B d C central bank digital currencies, Bill Dudley,

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Speaker 2: very valuable and thought provoking. This morning, we just saw

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Speaker 2: criminal trials, guilty verdicts, maybe appeals involved. But are we

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Speaker 2: getting away from the presumed criminality, the punishment, the secrecy

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Speaker 2: that Ken Rogoff had the courage to talk about.

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Speaker 8: Well, I think that the crypto space is in disarray

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Speaker 8: right now, and the real question now is our central

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Speaker 8: banks around the world going to introduce central bank digital

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Speaker 8: currencies to sort of take up that slack. I think

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Speaker 8: that's going to happen, probably going to be more evolutionary

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Speaker 8: than revolutionary, because it depends on what payment system that

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Speaker 8: you're starting with. I think we're central bank digital currencies

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Speaker 8: could play a very very important role. This is highlighted

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Speaker 8: a new paper that we put out by the brent

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Speaker 8: Witz Committee is really on cross border payments. We had

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Speaker 8: a system of central bank digital currencies where the interfaces

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Speaker 8: were harmonized, you could probably execute payments on a cross

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Speaker 8: border basis at a fraction of the cost. Today, for

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Speaker 8: a lot of migrant workers when they're sending their payments abroad,

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Speaker 8: it costs over five percent of the value of the

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Speaker 8: payment just to execute the trade. It's very slow. So

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Speaker 8: we can certainly do a lot better than than we're

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Speaker 8: doing right now now in this process. The FIT is

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Speaker 8: very far far behind in terms of their work on

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Speaker 8: central bank digital currencies, and in the US there's a

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Speaker 8: quite a bit of skepticism about the need for central

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Speaker 8: bank digital currencies.

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Speaker 9: Why is this work continue?

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Speaker 1: Well, that's so hard of the matter.

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Speaker 2: I'm going to go to Raphael Our owns a high

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Speaker 2: ground on this at BIS. He's documented the incredible friction

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Speaker 2: of transactions in the real world. We all thought we'd

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Speaker 2: be trading bitcoin and you know, John would be down

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Speaker 2: at Selene trading bitcoin for a sweater, but the answers

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Speaker 2: were not. We could really get down to where this

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Speaker 2: is efficacious for central banks. We could really squeeze us

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Speaker 2: down to where there's no transactional friction.

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Speaker 8: Well, that'll obviously always give a little bit of transactional friction,

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Speaker 8: but we can do a lot better than we're doing

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Speaker 8: right now. I mean, in central bank digital currencies should

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Speaker 8: be a pretty significant improvement over cash. I'll be just

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Speaker 8: the safest cash, but in terms of the fault risk,

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Speaker 8: because you'll be guaranteed by the sovereign.

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Speaker 9: Nation, but you don't have worries about storage.

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Speaker 8: You can transact with digital cash across long distances, So

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Speaker 8: to me, it's like cash plus it's superior to cache

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Speaker 8: and something that we the US should start to innovate on.

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Speaker 6: There's a concern bill that as you disintermediate banks, essentially

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Speaker 6: those agents that really capitalize from those frictions that exist,

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Speaker 6: that some of the functioning of markets that traditionally has

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Speaker 6: supported things like treasuries starts to ebb away. How concerned

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Speaker 6: are you as you start to adopt new, less friction

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Speaker 6: build methods and as capital markets slow in the wake

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Speaker 6: of rate hikes, how much does that really disintermediate banks

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Speaker 6: that really are still essential for the functioning of the

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Speaker 6: treasury market.

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Speaker 8: It really depends on central bank digital currency design, and

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Speaker 8: I think there you want to have a two tier

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Speaker 8: system where the banks continue to own the customer relationships.

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Speaker 8: Central banks don't want to have customer relationships with hundreds

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Speaker 8: of millions of households, so.

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Speaker 9: They should hand that off to the banking system.

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Speaker 8: The second thing you want to do is make sure

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Speaker 8: that the central bank digital currency doesn't pay interest. If

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Speaker 8: it doesn't pay interest, it's basically going to be used

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Speaker 8: for payments, not for investment, So that preserves the role

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Speaker 8: of the central of commercial banks as intermediaries.

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Speaker 9: So I think if you do those two things essentially

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Speaker 9: protect that.

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Speaker 8: The commercial banking system is providing financial intermediation services, but

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Speaker 8: the central bank helps provide a better payments medium.

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Speaker 6: The reason why I ask is on a broader sense

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Speaker 6: away from digital currencies, is there is increasing concern about

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Speaker 6: how much of the risk taking activity and how much, frankly,

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Speaker 6: of financial market functioning has moved outside of the highly

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Speaker 6: regulated banks into the private sector. Earlier this morning, UBAS

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Speaker 6: chair Clem Kelliher came out warning again that there's a

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Speaker 6: bubble in private markets and that there's risks building there

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Speaker 6: as an increasing amount of lending moved to that area.

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Speaker 6: Are you concerned about that? Do you think that there

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Speaker 6: is this sort of situation forming on the heels of

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Speaker 6: rate hikes, on the heels of the more tightly regulated

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Speaker 6: banks that deserves greater scrutiny.

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Speaker 9: Absolutely?

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Speaker 8: I think this notion that all we need to do

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Speaker 8: to fix the problems that we saw in March of

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Speaker 8: twenty twenty in the banking system is to appile a

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Speaker 8: lot higher capal requirements on the largest banks.

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Speaker 9: I think that's misguided.

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Speaker 8: Increase the cabal requirements on the biggest banks, You're just

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Speaker 8: going to push activity out into the non regulated banking sector,

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Speaker 8: and that's going to make the financial system less secure,

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Speaker 8: more unstable than the current regime.

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Speaker 9: So I think we need to think.

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Speaker 8: Really hard about what were the problems in March twenty

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Speaker 8: twenty and how to address them.

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Speaker 5: Bill, thanks for catching out with us.

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Speaker 4: Give us an your view on that built outly the

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Speaker 4: former New York Fed President.

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Speaker 1: Lie So this is joy.

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Speaker 2: Why don't you bring in mister Mayo here because he's

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Speaker 2: all AI in bankings.

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Speaker 6: Which makes me very happy actually because Thanksgiving dinners several

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Speaker 6: of them. All of the discussion was about artificial intelligence.

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Speaker 6: Mike Mayo focused on artificial intelligence as well, saying that

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Speaker 6: it's not just going to be in big tech, it's

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Speaker 6: also going to be in banks that you need to

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Speaker 6: have AI talent at the financial institution, saying the marriage

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Speaker 6: of banks with tech, including AI, is a long term

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Speaker 6: positive that can help the industry trend toward record efficiency.

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Speaker 6: Joining us now is the one and only Michael Mayo, Mike,

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Speaker 6: thank you so much for being with us. So tell

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Speaker 6: us just how much banks could benefit at a time

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Speaker 6: where people have written them off as utilities that are

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Speaker 6: overspending and are not going to make big returns.

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Speaker 10: Well, if you're a bank and don't have an AI strategy,

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Speaker 10: then you don't have a strategy because if the bank

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Speaker 10: across the street has calculators or spreadsheets or Bloomberg terminals, yes,

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Speaker 10: and you don't have those, then how are you going

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Speaker 10: to compete? So AI is here to stay. The marriage

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Speaker 10: of banks and tech has been a good one. It's

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Speaker 10: stalled recently, but I think AI can rekindle that relationship

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Speaker 10: by taking the productivity benefits which have been revenues per

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Speaker 10: employee have improved by one third over the last decade.

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Speaker 10: So banks and tech have been working, but I think

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Speaker 10: AI can take that to another level.

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Speaker 2: Is it a kind of thing where there'll be a

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Speaker 2: few winners you mentioned Golias Mike Mayo in your noe

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Speaker 2: is a kind of thing where four or five will

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Speaker 2: win and the rest lose? Or can it actually be

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Speaker 2: a benefit distributed across the industry?

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Speaker 10: Well, I think most jobs at banks will be impacted.

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Speaker 10: I mean, think of what I do. I'm an analyst,

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Speaker 10: and analysis can be improved by this extra tool called

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Speaker 10: a Now I do think there will always be a

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Speaker 10: human in the loop for most cases. In other words,

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Speaker 10: to prepare for your show today, Lisa and Tom, I

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Speaker 10: went to chat GPT and said, what should I say

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Speaker 10: in one sentence about this? And they said it's a

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Speaker 10: revolution that will enable productivity, savings and better customer service.

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Speaker 10: Well that's an improval. Well that's an improved starting point.

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Speaker 10: But you know it's partly wrong. First, I'm not sure

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Speaker 10: it's a revolution, especially at banks. It tends to be

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Speaker 10: more of an evolution, and simply by enabling that potential

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Speaker 10: doesn't mean that becomes a reality. And you've seen false

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Speaker 10: starts cloud, You've had some buyers remorse. Blockchain didn't come

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Speaker 10: out as quickly as expected. You know the dot com

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Speaker 10: bubble one point. Oh, Tom, you remember all these Internet

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Speaker 10: pollows which didn't survive. So I'm positive on the implications

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Speaker 10: of AI, but I also I'm aware of the.

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Speaker 1: Cast come back even further. George Ball E. F. Hutton.

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Speaker 1: They blew it.

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Speaker 2: They couldn't keep up on technology.

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Speaker 1: This is Lisa.

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Speaker 2: When there were cards with holes in them and a

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Speaker 2: thing called Fortran. The answer is I want to know

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Speaker 2: who the losers are going to be in this. I mean,

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Speaker 2: I know you've got single best buys in all this,

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Speaker 2: but what is the scale of the losers that you

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Speaker 2: see in.

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Speaker 1: Technology and banking three to five years out.

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Speaker 10: Well, I do think Goliath is winning, and you have

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Speaker 10: this poll by Evident. I know they've had the founders

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Speaker 10: on your show. In fact, they have an all day

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Speaker 10: conference in New York City tomorrow. So JP Morgan is

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Speaker 10: number one front and center right now and their investment

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Speaker 10: in technology are paying off. I'm surprised to see City

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Speaker 10: Group in the top ten for all their issues with

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Speaker 10: their back office, and they have major issues. They're making

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Speaker 10: some efforts with AI. On the other hand, those banks

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Speaker 10: that have not advanced with digitization and the cloud and

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Speaker 10: getting their data together could struggle. And I do wonder

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Speaker 10: about some of these mid sized banks. I mean, do

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Speaker 10: they have the scale to really leverage these solutions and

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Speaker 10: getting talent. Talent is such a big issue and you

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Speaker 10: can't just buy talent off shelf. You can get solutions,

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Speaker 10: but who's actually going to implement those solutions in each

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Speaker 10: business line?

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Speaker 6: So when I'm listening to you, I'm thinking how much

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Speaker 6: are they're going to pay them. I mean, we're talking

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Speaker 6: about open AI paying eight hundred thousand dollars to engineers

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Speaker 6: at just at of a base level. I mean, how

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Speaker 6: much your bank's going to have to pay some of

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Speaker 6: this talent to come to their bank and develop similar

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Speaker 6: solutions that can effectively support and reduce certain headcount in

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Speaker 6: certain areas well.

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Speaker 10: I think what you'll see is you'll see a reduction

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Speaker 10: in headcount and some of those savings plowed back into

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Speaker 10: paying other employees more money, especially AI engineers. They're in

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Speaker 10: serious demand. But if you go to one of the

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Speaker 10: largest banks, you have a whole career path. You can

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Speaker 10: scale these solutions across tens of millions of customers as

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Speaker 10: opposed to going to a smaller bank. I mean, what's

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Speaker 10: your pitch. Now? There are some smaller banks in this

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Speaker 10: evidence survey that performed quite well because they were already

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Speaker 10: ahead on technology. So I think those winning in technology

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Speaker 10: can keep winning more and those that are behind are

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Speaker 10: going to have to have kind of a existential moment here.

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Speaker 6: This can all work if banks have the cash to

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Speaker 6: invest right and that sort of you put a pause

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Speaker 6: on that at a time when potentially there could be

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Speaker 6: a slow down and there could be some kind of

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Speaker 6: reduction in revenues tied to slowing capital markets how much

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Speaker 6: I understand this is a longer term call, but how

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Speaker 6: much do you see a thawing in that kind of

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Speaker 6: environment next year versus a tightening and the screws I mean,

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Speaker 6: this is sort of one of the big disagreements for

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Speaker 6: the backdrop for banks and capital markets activity at a

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Speaker 6: time where yields are still high, but we also are

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Speaker 6: potentially going to start seeing the effects of that.

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Speaker 10: Well, I promise you I will be the first analyst

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Speaker 10: to ask that question or earnings calls. If banks are

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Speaker 10: spending too much money. Banks have no choice because of

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Speaker 10: the headwinds from rates, recession possibility, and regulation. They must

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Speaker 10: get more efficient. So if I'm the CEO of any

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Speaker 10: bank and you're coming to me with the program for

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Speaker 10: AI and want to invest a lot of money, I'd say, great,

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Speaker 10: where are you saving the money to fund that?

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Speaker 2: Nobody cares. All we want to know from Mike Mayo

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Speaker 2: is what to do this year? Twelve months out, twelve

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Speaker 2: months ago now flat on its back. We've had a

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Speaker 2: magnificent seven moonshot right now. Keith briat Indexes twenty five

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Speaker 2: percent above the pandemic low. Is this the year twenty

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Speaker 2: twenty four of the banks? Do you load the boat

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Speaker 2: here on banking?

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Speaker 10: Well, look, the long arc of the benefits of the

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Speaker 10: industry de risking has still yet to play out. Banks

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Speaker 10: didn't get credit through the pandemic. The excuse was the

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Speaker 10: government stimulus. Right now, you had some smaller regional banks

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Speaker 10: fail earlier this year, so it's still delayed. So I

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Speaker 10: still think over the next two to three years you

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Speaker 10: see the benefit of the improved banking industry resiliency play out,

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Speaker 10: and then they aren't as risky as perceived and they

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Speaker 10: re rate at least back to historical And then the

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Speaker 10: bigger question is longer term for the rerate above. Now,

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Speaker 10: it's not immediate tom. I think as you get further out,

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Speaker 10: you get better inflection points when it comes to banks,

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Speaker 10: bread revenues, interest rates, effects, monetizing that capital markets backlog,

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Speaker 10: and more clarity on regulation, which is a very big issues.

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Speaker 6: Still, just real quick, just to follow up on the AI,

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Speaker 6: what is the right AI investment? Is it getting some

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Speaker 6: sort of application to write your reports for you. Is

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Speaker 6: it being able to collate data from your customers to

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Speaker 6: basically prescribe what they're going to do or want. What's

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Speaker 6: the correct way.

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Speaker 10: There's no one size fits off when it comes to

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Speaker 10: AI investments. It's about banks tailoring those AI investments to

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Speaker 10: their use cases that they have that's unique to them.

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Speaker 10: So I find interesting anything related to compliance, fraud, cyber

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Speaker 10: that's where you're seeing some really low hanging fruit early benefits.

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Speaker 10: I think when it comes to some additional automation in.

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Speaker 11: The back office.

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Speaker 10: I love what it can do for technology, the idea

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Speaker 10: of Cobyl program change to Python, change to c plus plus,

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Speaker 10: the ability to change archaic code. And by the way,

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Speaker 10: most or almost all large banks still are advertising for

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Speaker 10: Cobyl programmers.

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Speaker 1: Tom, why are you killing me?

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Speaker 10: By my first programming class at punch cards too.

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Speaker 1: So fourteen Yeah, what were that? Ancient? Lisa is like,

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Speaker 1: what are they talking about? Single?

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Speaker 10: Best buy ten seconds, JP Morgan and City Group. I

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Speaker 10: had said, Okay, Barbell.

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Speaker 2: Approach, Barbell approached, Mike Mayol, thank you so much, as

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Speaker 2: WILLI s Fargo.

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Speaker 4: Kati Kaminski, Chief Investments, trying to just to Alpha Simplex

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Speaker 4: joins us now Katie the journey the low on a

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Speaker 4: tenure yield back in twenty twenty in spring fifty basis

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Speaker 4: points the high over the last couple of months through

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Speaker 4: five percent. It paid to be short this bond market.

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Speaker 4: You have been short, but the turnaround in the last

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Speaker 4: couple of months has been brutaled the other way. We've

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Speaker 4: come from five percent down to four forty on a

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Speaker 4: ten year Katie, you've been short. Are you still short?

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Speaker 5: And if you are, why, Yes, still short?

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Speaker 7: But that has to do with different signals having different views.

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Speaker 7: Take a look at the chart for the year. If

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Speaker 7: you look at the year chart, the last month has

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Speaker 7: been a miraculous turnaround relative to where we've come. So

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Speaker 7: we're still way ahead of where we began the year,

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Speaker 7: even prior to what happened in post what happened in

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Speaker 7: the regional banking crisis. And so I think the key

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Speaker 7: question to ask yourself about bonds right now is where

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Speaker 7: are we going next? We have been looking all year

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Speaker 7: for a distant version of the curve, and we got

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Speaker 7: that in October, and the next point is still really uncertain.

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Speaker 7: Are we moving to a steeper curve and if so,

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Speaker 7: which way? Or are we just going to move around

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Speaker 7: and sort of a range until we figure out what's

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Speaker 7: actually happening with the Fed.

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Speaker 6: Katie, Why is it not as simple as taking a

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Speaker 6: look at the economic data coming out showing that it

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Speaker 6: is disappointing much more frequently than it is outperforming, and

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Speaker 6: just sort of leaning into that which the rest of

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Speaker 6: the market seems to be doing.

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Speaker 7: This is a good question, because really what I find

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Speaker 7: the most concerning about the last month is there's been

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Speaker 7: a massive has gone rally on weaker economic data, and

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Speaker 7: that to me is sort of a relief rally from

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Speaker 7: where we've come, because we've been through a lot, particularly

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Speaker 7: in bonds, and so I think most people are buying

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Speaker 7: right now because they're saying, if we see cuts soon,

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Speaker 7: then we know that yields are going to come down.

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Speaker 7: My concern is that it could take a lot longer

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Speaker 7: than people think, pointing out that inflation is still way

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Speaker 7: above target, or at least one percent above target, so

442
00:21:27,040 --> 00:21:29,320
Speaker 7: we could take a year or so to get there.

443
00:21:29,440 --> 00:21:32,400
Speaker 7: People are very quick to think that things are over

444
00:21:32,600 --> 00:21:36,119
Speaker 7: when they take time to actually get through the system.

445
00:21:36,359 --> 00:21:37,840
Speaker 1: Katie, we're setting up for the new year.

446
00:21:38,040 --> 00:21:39,840
Speaker 2: I want to go back to the advent of all this,

447
00:21:39,880 --> 00:21:42,240
Speaker 2: and this is trend based studies, and it's Andrew Low

448
00:21:42,320 --> 00:21:45,240
Speaker 2: the giant, and you know, working with Elf Simplex and

449
00:21:45,280 --> 00:21:48,159
Speaker 2: Wells Wilder and Monroe Trout, John Henry and the rest

450
00:21:48,520 --> 00:21:51,200
Speaker 2: and the Germaine question twenty years ago is the same today.

451
00:21:51,560 --> 00:21:55,000
Speaker 2: If you look at trend based studies or the complexity

452
00:21:55,040 --> 00:21:58,159
Speaker 2: of trend based setups, are they elegant right now? Is

453
00:21:58,160 --> 00:21:59,919
Speaker 2: the math good or are you blind?

454
00:22:01,520 --> 00:22:01,840
Speaker 9: Well?

455
00:22:02,080 --> 00:22:06,040
Speaker 7: Turning points are notoriously difficult for trend following. It's because

456
00:22:06,080 --> 00:22:09,080
Speaker 7: we're not really set up to pick the tops and

457
00:22:09,119 --> 00:22:12,359
Speaker 7: bottoms of big moves. And what happens in these turning

458
00:22:12,440 --> 00:22:15,800
Speaker 7: points is we have to figure out using math, where

459
00:22:15,920 --> 00:22:19,000
Speaker 7: is the next step of the trend. And that's where

460
00:22:19,160 --> 00:22:23,280
Speaker 7: right now is an inflection point. And I'm looking forward

461
00:22:23,359 --> 00:22:25,720
Speaker 7: to see if we can actually see that steeper curve.

462
00:22:26,359 --> 00:22:29,160
Speaker 7: And when we've done historical analysis, what you do see

463
00:22:29,359 --> 00:22:33,600
Speaker 7: is flat curves or steepening of curves. Is very difficult

464
00:22:33,920 --> 00:22:35,960
Speaker 7: for trend signals because it's moving.

465
00:22:36,000 --> 00:22:37,440
Speaker 9: Everything's moving, so.

466
00:22:37,560 --> 00:22:40,479
Speaker 2: It's a stochastic environment and you've got to find a

467
00:22:40,560 --> 00:22:44,040
Speaker 2: new trend. What is the key attribute for our listeners

468
00:22:44,119 --> 00:22:46,960
Speaker 2: and viewers to establish the trend?

469
00:22:48,800 --> 00:22:50,960
Speaker 7: Well, I think the key thing that we always think

470
00:22:51,000 --> 00:22:55,040
Speaker 7: about as trend followers. We try to blend different views.

471
00:22:55,080 --> 00:22:57,920
Speaker 7: So right now, the long term view is still cautious.

472
00:22:58,480 --> 00:23:02,280
Speaker 7: The shorter term view is very very optimistic, And if

473
00:23:02,280 --> 00:23:04,679
Speaker 7: you combine those two together, you're really sitting in a

474
00:23:04,720 --> 00:23:07,560
Speaker 7: situation now where we need more data and we need

475
00:23:07,600 --> 00:23:10,400
Speaker 7: more time to understand where the market's going next. And

476
00:23:10,400 --> 00:23:13,040
Speaker 7: that's why I think the market is so focused on

477
00:23:13,119 --> 00:23:15,879
Speaker 7: every data point that comes out, because we're trying to

478
00:23:15,880 --> 00:23:19,959
Speaker 7: sift through which view is correct. Is there a new trend,

479
00:23:20,200 --> 00:23:22,240
Speaker 7: have we moved to a new era, a new phase

480
00:23:22,400 --> 00:23:25,160
Speaker 7: of the of the curve shift, or are we still

481
00:23:25,200 --> 00:23:27,120
Speaker 7: sort of treading water trying to figure that out.

482
00:23:27,240 --> 00:23:30,480
Speaker 6: Time is expensive for shorts, and that's something that we

483
00:23:30,640 --> 00:23:33,119
Speaker 6: have seen play out again and again. How much are

484
00:23:33,119 --> 00:23:35,760
Speaker 6: some of the short positions being washed out adding to

485
00:23:35,800 --> 00:23:38,680
Speaker 6: the rally? The stability that we've seen in bond yields

486
00:23:38,680 --> 00:23:42,679
Speaker 6: over the past week and something that you think maybe

487
00:23:42,680 --> 00:23:44,680
Speaker 6: can't last.

488
00:23:44,720 --> 00:23:47,080
Speaker 7: Yes, of course, but I think there's a lot. There's

489
00:23:47,080 --> 00:23:50,320
Speaker 7: been plenty of shorts this year, especially last year as well.

490
00:23:50,359 --> 00:23:53,400
Speaker 7: When you think about where we've gone, we definitely need

491
00:23:53,440 --> 00:23:56,720
Speaker 7: a balance between shorts and longs in this market. We

492
00:23:56,880 --> 00:24:01,080
Speaker 7: have seen more buying pressure recently, which has been of

493
00:24:01,119 --> 00:24:06,679
Speaker 7: perhaps causing some deceleration or deleveraging in short positions. But

494
00:24:06,960 --> 00:24:09,600
Speaker 7: from the trend space, that's a strategy that's much more

495
00:24:10,119 --> 00:24:12,960
Speaker 7: slow moving than some that you might be discussing. But

496
00:24:13,000 --> 00:24:16,679
Speaker 7: there are definitely potential that some people are unwinding shorts

497
00:24:16,720 --> 00:24:17,080
Speaker 7: as well.

498
00:24:17,200 --> 00:24:19,199
Speaker 4: Hey Kitty, thanks for the update. Still short on this

499
00:24:19,240 --> 00:24:21,960
Speaker 4: bomb market, Keady Commitski of Alpha Simplex.

500
00:24:32,400 --> 00:24:35,080
Speaker 2: We take immense pride and I'm talking for the wonderful

501
00:24:35,119 --> 00:24:37,359
Speaker 2: team we have working twenty four seven of giving you

502
00:24:37,440 --> 00:24:41,520
Speaker 2: people of experience as we look at the horrific war

503
00:24:42,119 --> 00:24:45,320
Speaker 2: in the Eastern Mediterranean. We've been advantaged by Norman Rule

504
00:24:45,800 --> 00:24:49,000
Speaker 2: to say he's a former senior US intelligence official at

505
00:24:49,000 --> 00:24:52,600
Speaker 2: the Center for Strategic and International Studies, barely describes his

506
00:24:52,760 --> 00:24:53,880
Speaker 2: public service.

507
00:24:53,560 --> 00:24:55,960
Speaker 1: To the nation. Mister Roland, I want to cut.

508
00:24:55,760 --> 00:25:00,480
Speaker 2: To the chase here my amateur reading of fiction. Is

509
00:25:00,520 --> 00:25:06,080
Speaker 2: it a ceasefire? Is an intelligence opportunity? Is this ceasefire

510
00:25:06,640 --> 00:25:10,680
Speaker 2: good for the Israelis to develop intelligence in Gaza?

511
00:25:12,080 --> 00:25:15,440
Speaker 11: Good morning, and you are absolutely correct. Keep in mind

512
00:25:15,480 --> 00:25:18,240
Speaker 11: that the Israelis have a variety of means of intelligence.

513
00:25:18,280 --> 00:25:22,920
Speaker 11: They must ingest a preasent. Prisoner interrogations take quite a while.

514
00:25:23,359 --> 00:25:28,280
Speaker 11: Laptops have thousands of pages of data that must be reviewed,

515
00:25:28,280 --> 00:25:32,600
Speaker 11: and you're looking to identify locations of individuals, hiding sites,

516
00:25:33,160 --> 00:25:37,280
Speaker 11: weapons capacities, movement profiles, so that your troops can then

517
00:25:37,440 --> 00:25:41,719
Speaker 11: use this as they plan operations when hostilities resume. So

518
00:25:41,840 --> 00:25:45,280
Speaker 11: this is indeed probably one of the busiest periods for

519
00:25:46,040 --> 00:25:47,760
Speaker 11: Israeli and partner intelligence.

520
00:25:47,960 --> 00:25:50,879
Speaker 2: Does their military effort on a longer cease fire?

521
00:25:52,800 --> 00:25:56,439
Speaker 11: Well, their military right now is supportive of the hostage release.

522
00:25:56,600 --> 00:26:00,320
Speaker 11: They are concerned obviously that they allowed hostages to be

523
00:26:00,359 --> 00:26:03,399
Speaker 11: taken and there because of the failure of October seventh,

524
00:26:03,680 --> 00:26:07,680
Speaker 11: and this period is allowing that innocent Israelis are returning home,

525
00:26:07,680 --> 00:26:11,920
Speaker 11: but that does not undermine their commitment to eradicating Hamas.

526
00:26:12,440 --> 00:26:15,399
Speaker 5: Do we understand Have they articulated an endgame?

527
00:26:15,480 --> 00:26:18,640
Speaker 11: Norman, No, And I think it may be a bit

528
00:26:18,760 --> 00:26:21,800
Speaker 11: unfair to even think about what an endgame may be.

529
00:26:22,240 --> 00:26:24,240
Speaker 11: So let me give you a give you an example.

530
00:26:24,280 --> 00:26:27,679
Speaker 11: We are, in some ways in the easiest period of

531
00:26:27,720 --> 00:26:34,199
Speaker 11: hostage negotiations. Once the negotiations turned to Israeli soldiers or men,

532
00:26:34,320 --> 00:26:37,200
Speaker 11: you're going to see Hamas perhaps demand a lot more

533
00:26:37,280 --> 00:26:39,919
Speaker 11: from the Israelis, the Israelis are unlikely to give, and

534
00:26:39,960 --> 00:26:44,160
Speaker 11: therefore this could extend the hostage negotiations far longer than

535
00:26:44,320 --> 00:26:47,159
Speaker 11: Israel could permit. And also we're looking at a period

536
00:26:47,160 --> 00:26:51,480
Speaker 11: of time when the American presence among the hostages remains significant.

537
00:26:51,600 --> 00:26:55,480
Speaker 11: Only one American has been released, likely because Hamas wishes

538
00:26:55,520 --> 00:26:59,360
Speaker 11: to keep American political pressure on Israel. So it may

539
00:26:59,440 --> 00:27:01,879
Speaker 11: well be that Americans may not be released in the

540
00:27:01,920 --> 00:27:03,160
Speaker 11: initial period.

541
00:27:03,480 --> 00:27:05,119
Speaker 4: There's something that you've said that I'd like you to

542
00:27:05,160 --> 00:27:07,240
Speaker 4: explain to our audience. You said it's important not to

543
00:27:07,280 --> 00:27:12,400
Speaker 4: confuse procedural hangups with strategic differences on hostage releases. Can

544
00:27:12,440 --> 00:27:14,160
Speaker 4: you just go through what that actually means, Norman.

545
00:27:15,080 --> 00:27:18,919
Speaker 11: In the early days of hostage negotiations, you've got issues

546
00:27:18,960 --> 00:27:22,640
Speaker 11: such as how do you bring hostages to a safe location,

547
00:27:24,160 --> 00:27:27,120
Speaker 11: exactly which hostage is going to be released, and what

548
00:27:27,160 --> 00:27:30,639
Speaker 11: that particular group holding the hostages feels about their loss

549
00:27:30,640 --> 00:27:33,560
Speaker 11: of that influence. And then on the Israeli side, you've

550
00:27:33,560 --> 00:27:37,240
Speaker 11: got prisoners who have committed in some cases quite horrific acts,

551
00:27:37,280 --> 00:27:42,720
Speaker 11: and the families of the individuals behind those sentences are

552
00:27:42,760 --> 00:27:44,600
Speaker 11: going to be unhappy about the release. So you're going

553
00:27:44,600 --> 00:27:47,480
Speaker 11: to have a process of working through this. But it

554
00:27:47,520 --> 00:27:50,960
Speaker 11: doesn't mean that each side in this issue isn't interested

555
00:27:51,080 --> 00:27:54,080
Speaker 11: in the release and the ceasefire. In fact, all sides

556
00:27:54,119 --> 00:27:58,240
Speaker 11: involved Hamas, Israel, the United States, Qutar, they all benefit

557
00:27:58,359 --> 00:28:00,720
Speaker 11: from a ceasefire and hostage release.

558
00:28:01,119 --> 00:28:04,359
Speaker 6: Norman, can you just elaborate on the different factions within

559
00:28:04,440 --> 00:28:09,040
Speaker 6: the Hamas group that are holding hostages and why they

560
00:28:09,119 --> 00:28:12,480
Speaker 6: might be reluctant to release certain hostages. How this is

561
00:28:12,520 --> 00:28:16,480
Speaker 6: sort of playing out in a political sphere over in Gaza.

562
00:28:17,280 --> 00:28:20,560
Speaker 11: Well, we not only have different factions among the Palestinians,

563
00:28:20,600 --> 00:28:25,320
Speaker 11: primarily Hamas, palestin Islamis Shihad criminal groups that may have

564
00:28:25,359 --> 00:28:28,960
Speaker 11: taken hostages and seek to sell them to their own

565
00:28:29,000 --> 00:28:33,960
Speaker 11: Palestinian partners, but we also have a communications problem. Imagine

566
00:28:34,080 --> 00:28:36,720
Speaker 11: if you are these various groups and you know the

567
00:28:36,800 --> 00:28:40,200
Speaker 11: Israelis are looking for your communications and looking for your movements,

568
00:28:40,440 --> 00:28:43,520
Speaker 11: how do you exchange the data and conduct those intra

569
00:28:43,680 --> 00:28:47,760
Speaker 11: Palestinian negotiations just to get that process going. It's a

570
00:28:47,880 --> 00:28:49,160
Speaker 11: very complicated situation.

571
00:28:49,480 --> 00:28:51,920
Speaker 6: What do you expect Tony Blinken to do on his

572
00:28:52,000 --> 00:28:53,120
Speaker 6: latest tour of the region.

573
00:28:54,520 --> 00:28:59,840
Speaker 11: We're always going to push for some sort of continued

574
00:29:00,080 --> 00:29:03,080
Speaker 11: pressure on Hamas to release not only hostages, but to

575
00:29:03,160 --> 00:29:06,240
Speaker 11: think about how they would consider a day after event.

576
00:29:06,320 --> 00:29:10,800
Speaker 11: There's been very little actual crystallization of what day after means.

577
00:29:10,880 --> 00:29:14,080
Speaker 11: You may have anything from an international police presence to

578
00:29:14,720 --> 00:29:19,080
Speaker 11: Hamas thinking it can still survive because it will retain

579
00:29:19,160 --> 00:29:22,040
Speaker 11: hostages for a period of time. And these talks are

580
00:29:22,080 --> 00:29:26,480
Speaker 11: ongoing among all the various partners, and perhaps most important

581
00:29:26,480 --> 00:29:29,120
Speaker 11: here are going to be the Saudist because they're leading

582
00:29:29,240 --> 00:29:32,959
Speaker 11: such a large portion of the Islamic the Islamic world

583
00:29:33,080 --> 00:29:35,480
Speaker 11: in Israel. It's really to make sure that he has

584
00:29:35,520 --> 00:29:38,160
Speaker 11: a sense of where the coalition is in terms of

585
00:29:38,240 --> 00:29:41,960
Speaker 11: resumption of hostilities and how Natanya, who is handling the

586
00:29:42,800 --> 00:29:45,120
Speaker 11: various hostage debates within his own government.

587
00:29:45,480 --> 00:29:48,920
Speaker 2: Norman role Aaron David Miller with us yesterday was just brilliant,

588
00:29:48,960 --> 00:29:52,160
Speaker 2: and how this is not nineteen sixty seven, if that

589
00:29:52,440 --> 00:29:54,400
Speaker 2: is true, and if there's not going to be a

590
00:29:54,440 --> 00:29:56,960
Speaker 2: Camp David visit, a Camp David accord.

591
00:29:57,440 --> 00:30:00,520
Speaker 1: Whatever our memory is of normal diplomatic.

592
00:30:00,120 --> 00:30:04,080
Speaker 2: Ties, what do you presume will be the administration's approach

593
00:30:05,080 --> 00:30:09,160
Speaker 2: to finding some kind of accord. Where are we a

594
00:30:09,280 --> 00:30:11,400
Speaker 2: year from now, two years from now?

595
00:30:12,280 --> 00:30:16,080
Speaker 11: Very difficult to think forward. First, you've got to identify

596
00:30:16,120 --> 00:30:18,880
Speaker 11: which partners are going to show up for a camp

597
00:30:19,000 --> 00:30:21,920
Speaker 11: David's style agreement meeting. I mean, think about it. Will

598
00:30:21,960 --> 00:30:26,000
Speaker 11: Benjamin Netanyahu survive in his current political situation? It's stoutful.

599
00:30:26,360 --> 00:30:28,920
Speaker 11: Who is going to be the leader of the Palestinians?

600
00:30:29,440 --> 00:30:32,560
Speaker 11: Abu Mazen Mahammuda Bass, the head of the Palestine Authority

601
00:30:32,680 --> 00:30:35,520
Speaker 11: is eighty eight years old. There will be no hamas

602
00:30:35,520 --> 00:30:38,440
Speaker 11: presidents at the table. So who do you bring to

603
00:30:38,480 --> 00:30:42,680
Speaker 11: the table that those entities don't actually exist at present?

604
00:30:43,080 --> 00:30:45,160
Speaker 4: That's a massive question. Norman has tried to get your

605
00:30:45,200 --> 00:30:47,240
Speaker 4: for you, it always says no one. Roll of the

606
00:30:47,360 --> 00:30:49,640
Speaker 4: Center for Strategic and International Studies.

607
00:30:49,920 --> 00:30:53,760
Speaker 2: Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify and

608
00:30:53,880 --> 00:30:58,080
Speaker 2: anywhere else you get your podcasts. Listen live every weekday

609
00:30:58,360 --> 00:31:01,840
Speaker 2: starting at seven am Eastern. I'm Bloomberg dot Com, the

610
00:31:01,960 --> 00:31:06,480
Speaker 2: iHeartRadio app, tune In, and the Bloomberg Business app. You

611
00:31:06,520 --> 00:31:10,480
Speaker 2: can watch us live on Bloomberg Television and always on

612
00:31:10,600 --> 00:31:11,680
Speaker 2: the Bloomberg Terminal.

613
00:31:12,080 --> 00:31:16,280
Speaker 1: Thanks for listening. I'm Tom Keen and this is Bloomberg,